Saving for a child’s college education is an emotional topic, on many levels. I have had many discussions regarding saving for children’s or grandchildren’s educations over the years and what I have learned is that there is no “right” answer for everyone.
Most of us would agree that we want the best in life for our children. We want them to have a happy childhood, go to a good school, be accepted at a college of their choosing and have a career where they can be fulfilled and make a comfortable living while supporting themselves and their family, if they so choose.
More difficult to agree on is how much we “should” contribute towards the cost of our kids’ secondary education. As we all know, college costs are skyrocketing and it is nearly impossible to save enough to cover all the costs associated with a four-year degree, let alone a Masters Degree or PhD.
One way to get information, is to visit one of a multitude of websites and plug numbers into a calculator. You can even choose the college you think might ultimately be your child’s destination. Two websites that I have found to be helpful are savingforcollege.com and .finra.org/investors/saving-college. Be prepared however. What you might learn is a number so daunting you will wonder how anyone could possibly save that much!
That is where the discussion starts.
- How much should one expect (or be expected) to save for a child’s education?
- What if you have several children?
- What about all the other things we should be saving for?
- Should we even consider paying the entire cost, or should we expect that our children will work part-time to offset some of the cost, and have some stake in their education?
As you can see, the questions are not always entirely financial. However, it is important to address them within the family to ensure that everyone agrees as to how paying for college will be handled in the future.
On the financial “side”, in a perfect world we would be able to contribute the maximum amount to our retirement plans as well as have a comfortable nest egg in the bank. And we would also be able to put any “extra” funds at the end of the month into a savings vehicle for college.
The reality is often very different. We may not be saving sufficiently for retirement, and there may not be anything “extra” at the end of the month. In that scenario, where would we ever find money to save for college?
Often we are able to count on generous family members for holiday and birthday gifts; sometimes grandparents searching for a strategy to lower potential estate tax exposure by reducing the size of their estate, may make substantial gifts to a college savings plan. However, most times the burden falls on the parents.
An important point to keep in mind is that though we may be able to find assistance for college from a number of sources – grants, scholarships, financial aid, or loans – there are no loans available to supplement retirement income. As retirees, will be dependent upon Social Security, and perhaps a pension, along with what we are able to save for ourselves to ensure a comfortable retirement.
So when we talk about the “right” amount to save for a child’s college education, I believe the best answer is “what you can”, after you have taken care of your own future financial well-being.
One of the best ways to ensure that your children have a successful adulthood is to make sure you remain financially independent in your retirement.
**Securities and investment advice offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC Marathon Financial Advisors, Inc. and Cadaret, Grant & Co., Inc. are separate entities.